There are countless reasons for tenants to move out of their traditional rental apartment. Whether they receive a new job, switch schools, or want to experience a different neighborhood culture, tenants can pack up and move with the slightest of efforts. The result is a daunting 45% average turnover rate in national multifamily apartment buildings. Both private and institutional investors are left exposed to a significant risk of losing tenants, facing turnover expenses, and being left with vacant units.
Most recently, the economic downturn brought by the pandemic has actually led to a decline in apartment turnover rates. The charts below illustrate that while the decline in turnover rates has accelerated, so has the number of move-out notices. It is likely that the lack of turnovers can be attributed to local and federal regulations that forbid landlords from evicting tenants.
After all, nonpaying tenants are worse than a high turnover rate.
Manufactured Housing Communities provide a safe haven for investors looking to eliminate the risk of turnover and non-paying tenants during an economic downturn. Tenants of MHCs own their homes and everything in them. They pay rent strictly for the lot they install their home on, or “lot rent.”
The result? tenants feel a sense of belonging and are literally attached to their communities. Since the home is theirs, tenants are encouraged to take better care of it, so they don’t get stuck with maintenance bills, and in contrast to multifamily buildings, neither do landlords. Additionally, despite the name “mobile,” it can cost tenants up to $10,000 to remove their home and relocate it to another park. The relocating process is grueling relative to multifamily, and requires tenants to detach their home from its lot, truck it on open roads, and install it into a new community.
As a result, mobile home community residents are reluctant to leave their communities. They are relatively resistant to rent increases, and it would take a significant change to warrant low-income tenants to pay such a high premium to relocate their home. Given the buy-in nature of mobile homes, investors of Manufactured Housing Communities are left exposed to just a 5% turnover rate. Risks associated with turnover rates are significantly reduced, and investors are protected from black swan events such as the recent pandemic.